Five key elements in establishing a successful business venture

Did you know that more than 34,000 people in Ecuador and almost 5,000 people in Paraguay have been able to fulfill their dream of becoming entrepreneurs in the last two years?  This is due to a new type of corporate entity called Simplified Joint Stock Company [Sociedad por Acciones Simplificadas SAS] that is formed quickly, flexibly, and with simpler procedures.

The impact of this type of company formation has varied from country to country. For example, the SAS has become the most popular type of corporate entity in Colombia (in effect since 2008) and Ecuador (implemented since 2020), with 98 percent and 67 percent respectively of the total number of companies  formed using this type of incorporation. They have also generated countless jobs, and the public administration has been able to collect considerable taxes and social security contributions through this type of company.

On the other hand, in countries such as Peru and Mexico, this type of company formation has not had the same results, and in countries such as Bolivia, the SAS is not even included in their regulations. That said, there are five key factors that allow this type of entity to be successful:

1. A clear corporate legal framework that complies at least with all the best practices of this type of corporate entity, such as inter alia, maximum contractual freedom, sole proprietorship, and the choice to use intermediaries in order to incorporate a company. It is essential to have a clear understanding of this new type of corporate entity and its essential characteristics. Some of these, as stated in the Model Law on SAS of the Organization of American States (OAS), refer to the position of the shareholders, the amount of capital, the registration documents, or the company's objects. Although most of the SAS regulations comply with these provisions, there are differences. For example, in Argentina a minimum capital is required; or in the case of Peru, sole proprietorship is not allowed.
2. Simplification of procedures for the formation, operation, and dissolution of the company and systems for registration of the SAS such as, for example, having the option to form companies through both traditional and digital means. The objective is for the SAS type of company formation to maintain its flexible nature and allow necessary regulations to be drawn up efficiently. Likewise, it is necessary to implement electronic systems (in the event incorporation by traditional and digital means is allowed), as is the case in Ecuador.
3. Ensure interconnectivity and good communication between government and private agencies involved in the process of forming a company. To this end, it is necessary to map out the procedures of, and the information held by, each public and private institution, measure their level of digitization and check if they have made a commitment to share data. In Paraguay, for example, an agreement was reached with a private financial institution to make it easier for entrepreneurs to open a bank account for those wishing to set up a simplified joint stock company [Empresa por Acciones Simplificadas EAS]
4. Dissemination and training on the SAS on an ongoing basis. An example of such dissemination is the one implemented by the Superintendent of Companies of Ecuador. In its campaign through tutorials disseminated in its social network accounts, it explains the benefits of the SAS, its procedures, requirements, etc.
5. Guarantee the institutional framework and continuity of public policies. Legal reforms of this innovative type of company and implementation thereof work if they are maintained over time, beyond the process of political transitions, as has been the case in Colombia, where the SAS has existed since 2008.

The World Bank has had the opportunity to advise several countries to introduce the Simplified Joint Stock Company in their corporate legal frameworks, as in the case of Ecuador and Paraguay.  The process included compliance with best practices following the five key elements in their implementation processes, thus making the SAS a different option to enter into, establish oneself in, and make improvements to, the corporate world.

It is no coincidence that the national leaders who have taken on the task of making legislative changes and have introduced the basic elements of this innovative modality to set up businesses, such as Colombia, Paraguay, and Ecuador, are the ones who have witnessed the most positive impacts.

Entrepreneurship flourishes within nurturing business policy environments that foster a conducive business climate and provide supportive regulatory frameworks. With this understanding, the introduction of a simplified corporation form in the legal frameworks of countries directly addresses the challenges associated with establishing and sustaining such an environment. By recognizing the significance of offering aspiring entrepreneurs a flexible and user-friendly corporate vehicle, this agenda serves as a vital tool to unlock the full potential of entrepreneurship as a catalyst for growth and economic development. It enables entrepreneurs to navigate regulatory complexities more easily, and encourages business creation and formalization.

To summarize, if countries follow the path taken by others when setting up a SAS, there is no doubt that they have a better chance of ensuring their success,  encouraging entrepreneurship and establishment of all types of companies, especially Micro, Small & Medium Enterprises (MSMEs).

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